Compound Interest

Front

What is Compound Interest?

Back

Compound interest is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods.

Front

What is the formula for calculating Compound Interest?

Back

The formula is A = P(1 + r)^t, where A is the total amount, P is the principal amount, r is the interest rate, and t is the time in years.

Front

What does P stand for in the compound interest formula A = P(1 + r)^t?

Back

P stands for the principal amount (the original amount of money invested or borrowed).

Front

What does A stand for in the compound interest formula A = P(1 + r)^t?

Back

A stands for the total amount of money accumulated after n years, including interest.

Front

If you invest $1000 at an interest rate of 5% compounded annually, how much will you have after 4 years?

Back

$1215.51

Front

If Trevor invests $1500 at an interest rate of 12% compounded annually, how much will he have after 3 years?

Back

$2,109.24 (not enough for $4000).

Front

What is the effect of increasing the interest rate on compound interest?

Back

Increasing the interest rate will result in a higher total amount accumulated over time.

Front

What is the effect of increasing the time period on compound interest?

Back

Increasing the time period will result in a higher total amount accumulated due to interest compounding over more periods.

Front

If Henry deposits $750 at an interest rate of 8.5% compounded annually, how much will he have after 5 years?

Back

$1127.74

Front

What is the difference between simple interest and compound interest?

Back

Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus any accumulated interest.